Intel CEO Criticizes Obama Policies

Intel CEO Otellini used strong words to bash Obama policies. We understand where this is coming from, but corporate taxes are not the only problem if one sees the bigger picture.

The semiconductor industry is a government subsidized one across the globe.

Meanwhile, Intel cut revenue forecast and its share halted last week. Perhaps the slowdown of Intel points to changes in the semiconductor investment cycle.(The Korean semiconductor companies have taken advantage of this cycle too)

There was a debate on how to restore American competitiveness on HBS site. Otellini made a comment in a segment and I posted my comment in response to his comment.

Otellini wrote:

Ed is right; it's time to take the long view.

More to the point, it's important for our country to identify, prioritize, and train leaders for what we deem the "industries of the future." Where is our long-term comparative advantage? I don’t think it’s in the assembly of low-value-added components, or in building motherboards. Those transactions are in fact done relatively cheaply overseas. Israel, Ireland, Singapore, or China will put up hundreds of millions of dollars for companies to put factories there. That’s a lot of money. Comparable incentives currently don’t exist in the United States. The lack of those incentives is a matter of policy that ought to be examined with a fresh eye. Do we want to encourage the industries of the last century, or of the next?

One area of opportunity is in ensuring a strong IT supply chain for military and scientific research. The United States must be an integral supplier -- indeed, the home base -- for the research and development of military and scientific technologies and applications. This is a national security issue as much as an economic one. In the past, research in support of the military and space efforts helped create the modern microelectronics industry.

Improvements in public education, particularly in math and science, certainly have to be another pillar of future competitiveness -- as President Obama has made clear in various recent addresses. In fact, the base problem of U.S. competitiveness isn’t just the wage inflation of the United States versus, say, China, but the overall capability of the U.S. workforce. We ought to be the place where creative and profitable ideas are born independent of where they end up being manufactured. Without a much stronger emphasis on math and science in the school systems, that’s not going to happen.

It’s a multigenerational problem perhaps, but it can be solved, with the right emphasis and a national mandate. We’ve been there before, after all. Remember Eisenhower? Sensing that we were lagging behind the Russians on rockets, he mandated the hiring, training, and empowerment of highly qualified math and science teachers (at high school and college levels) who taught the children who attended top universities and who became the NASA engineers behind the moon landing.

We can also apply IT productivity gains to under served industries like health care and greatly lower costs through lower error rates, less use of paper, and fewer redundancies. Those are technology problems, and they could create great new industries -- but they require us to basically blow up existing infrastructure.

The whole notion of where we want to go with green is equally compelling; that ought to be the space race of this generation. Rather than put a man on the moon, let’s build a safe, affordable car that gets 250 miles on a simple charge of electricity -- and let’s have a $100 million grand prize for the first person who develops a battery that can do that. That’s the kind of stimulating program that would generate interest in math and science -- and it’s a small investment compared to a trillion-dollar stimulus package.

Paul S. Otellini

President and CEO

Intel Corporation

I wrote:

I agree on several points Mr. Catmull and Mr. Otellini raised. Taking the balanced view, long-term, short-term, in the R&D portfolio is critical in the high-tech business. And yet, with all due respect, I have to disagree on some points.

Of course, the U.S. has to continuously develop the cutting-edge emerging technology in the upstream sectors of the value-chain like any other countries with the high-tech base should do. As I mentioned in the comment section of the last thread (Dr. Tyson’s article), the U.S. has retrained the best technology in many fields like software, specialty logic chips, and capital goods. In my humble opinion, the U.S. can’t afford to lose any manufacturing facilities no matter how low-income producers they can be in the mean time.(I do understand Mr. Otellini’s point setting up or maintaining a capital-intensive low value-added plant in the U.S. is costly and may be uncompetitive, but that’s not my point.)

My point is that given the America’s economic fundamentals, running any production operation which can generate and keep jobs is much healthier than being a deadbeat borrower and consumer of products including commodities. Of course, living a modest lifestyle, reducing deficits and reforming the financial sectors are all important for the recovery of the American economy, not to mention retaining top-notch talent in the high-tech sector, building industrial commons, practicing genuine capitalism and fair trade, and so on.

The U.S. faces 1.5 trillion dollar deficit for 2009, 10% of GDP. Importantly, the U.S. is facing high structural unemployment. I think that’s what the former CEO of Intel, Craig Barrett meant when he said “Intel will be okay. We can move to wherever in the world we can be most productive and innovative. But I’m a grandfather, and I really wonder how my grandchildren are going to earn a living”, quoted by Mr. Prestowitz in the comment section of the last thread.

I wholeheartedly agree with him. I would be inclined to worry less about big high-tech companies. For example, Intel is a well-run company. I’m sure it will survive.

I’m more concerned about the overall landscape of the American economy and the health of SMEs which hold up the large portion of the economy.

I encourage you to watch Bill Moyers’ interview on PBS (He interviewed MIT professor, former IMF chief economist Simon Johnson and U.S. Rep. Marcy Kaptur (D-OH) on the state of the economy. http://www.pbs.org/moyers/journal/10092009/watch.html) to see the U.S. can afford to lose any kind of manufacturing facilities. The U.S. is losing capital so rapidly, so I wonder how many U.S. firms can engage in any kind of long-term R&D investment within the U.S in the next 5 or 10 years in a practical sense.

Again, as I commented in the last thread, one has to understand how to restore American competitiveness in the larger context.

On a personal note, I’m not an American, but I do care about the well-being of America. I worked for manufacturing companies in a small town of the Midwest and the Silicon Valley. I remember that manufacturing factory jobs were supporting the local economy. I’m well aware of what’s been going on in the U.S. in terms of the financial market and high-tech sector, but please correct me if I am mistaken. I’m also well aware of how the Chinese are catching up fast in many areas although they’ve got many potential problems. It is disheartening to see the U.S. sinking like this.

http://blogs.hbr.org/hbr/restoring-american-competitiveness/2009/10/outsourcing-in-and-of-itself.html

His tone seems to have changed quite a bit since then, focusing more on job creation in the
U. S.

From CNET:

Otellini's remarks during dinner at the Technology Policy Institute's Aspen Forum here amounted to a warning to the administration officials and assorted Capitol Hill aides in the audience: unless government policies are altered, he predicted, "the next big thing will not be invented here. Jobs will not be created here."

Otellini singled out the political state of affairs in Democrat-dominated Washington, saying: "I think this group does not understand what it takes to create jobs. And I think they're flummoxed by their experiment in Keynesian economics not working."
http://news.cnet.com/8301-13578_3-20014563-38.html